TaxTMI 
TaxTMI 
2018 (12) TMI 279
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as AO b. Commissioner of Income Tax (Appeals) as CIT(A) c. Departmental Representative as DR d. Dated as dtd. e. Income Tax Act as I.T. Act f. Income Tax Appellate Tribunal as ITAT g. Learned as Ld. h. Under Section as U/s i. Accounting Standard as AS (2) Return of income was filed on 29.09.2012 declaring income under the normal provisions amounting to Rs. 56,81,18,862/- after claiming deduction U/s 80IA amounting to Rs. 113,07,28,240. Tax was paid U/s 115 JB on Book Profit of Rs. 109,12,74,502/-. The return was revised on 29.03.2014 vide e-filing acknowledgment number 154755411290314 declaring income of Rs. 56,81,18,862/-, under normal computation after claiming deduction U/s 80IA amounting to Rs. 113,20,12,434/-. The income U/s 115 JB was revised to Rs. 109,69,73,347/-. Assessment Order dated 23.03.2016 was passed U/s 143(3) of I.T. Act wherein following adjustments were made by the AO to the book profit as reported by the Assessee in return of income: 1. Prior Period Expenses Rs. 2,40,48,802 2. Provision for Railway extraordinary items Rs. 14,09,30,283 3. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng in respect of business income or income from other sources. The method of accounting could be either cash or mercantile. Section 13 of the 1922 Act, corresponding to section 145 of the Act, has been held to be a computation provision [CIT v. BadridasRamrai Shop [1939] 7 ITR 613 (Nag.)]. Further, section 115JA(2) lays down a method for compiling profit and loss account as well as a method for computing book profits, for the purpose of section 115JA of the Act. Section 115JA(4) of the Act makes applicable all the provisions of the Act except those provisions which are provided in the section itself. Accordingly, the provisions of section 145(1) would not apply. Section 145(2) of the Act provides that the Central Government may notify accounting Standards, from time to time, to be followed by any class of assessee or in respect of any class of income. Apparently, as such, section 145(2) is not linked to section 145(1). However, section 145(1) states that business income or income from other sources could be computed, subject to provision of sub-section (2), in accordance with either cash or mercantile system of accounting. Further, the accounting standards notifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f accounting principles, such change in the method of accounting could be disregarded by the Assessing Officer. Further, the method of accounting, which is employed, has to be consistent. In the case of assessee, the company formed a committee which advised for change in useful life of the asset and corresponding depreciation amount got increased considerably. Had the depreciation change been effected from retrospective effect, and the effect of such change been given in respective years, the entire burden of depreciation would not have arrived in the current year. There needs to be consistent in the accounting method, else, the book profits can always be managed by the assessee in the year, in which such provisions are applicable vis-a-vis when such provisions are not applicable. Another next basic issue to be considered is the nature and extent of adjustments which could be carried out to the net profit as reflected in the profit and loss account prepared in accordance with the provisions of the Schedule. This issue has been considered by Special Bench of the Income-tax Appellate Tribunal in case of Sutlej Cotton Mills Limited v. ACIT [1993] 45 ITD 22 (Cal.) and in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the section are listed below. "211. Form and contents of balance-sheet and profit and loss account ......................... ............................ (3A) Every profit and loss account and balance-sheet of the company shall comply with the accounting standards. (3B) Where the profit and loss account and the balance-sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balancesheet, the following, namely:- (a) the deviation from the accounting standards; (b) the reasons for such deviation; and (c) the financial effect, if any, arising due to such deviation. (3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A: Provided that the standards of accounting specified by the Institute of Chartered Accountan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....slative enactment, and it is to be remembered that judicial utterances are made in the set-ting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board, [1972] 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases." Similar views were expressed by the Apex Court in Sun Engg. Works, (198 ITR 297 at page 320). v) Where instances come to the light on examination that excess claims have been made (in the audited accounts), not in accordance with the provisions of Companies Act, the AO would be failing in his duty, if he does not make the correction called for. If the Income tax department comes across (camouflaged) accounts not in accordance with the provisions of Companies Act and accounting standards, it would be duty-bound to disturb the book profits. vi) In a recent decision by Hyderabad Tribunal in the case of Rain Commodities Limited (ITA No 673/Hyd/2009), the Tribunal while placing its reliance on the Apollo Tyres limited, quoted as below. "One of the moot question relevance to the issue before us is whether the assessing officer has power ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a sum of being prior period expenses of Rs. 2,40,48,802/- , provision for Railways extraordinary items Rs. 14,09,30,283/- and adjustment due to change in depreciation rates amounting to Rs. 52.74 crores to the returned book profits of the company for the purpose of computation of income as per MAT. " Relevant portion of the order of Ld. CIT(A) "4. Ground No. 2 is directed against the disallowances made by the AO while calculating book profit under section 115JB of the Act. Ground No. 2.1, 2.2 & 2.3 are against adjustments on account of Prior period expenses of Rs. 2,40,48,802, Exceptional item of Rs. 14,09,30,283 and Adjustment due to change in Depreciation rate of Rs. 52,74,00,000/-. 4.1 On these grounds, the Ld. AR furnished written submission as under: "Section 115JB of the Income Tax Act, 1961 provides for Minimum Alternate Tax (MAT) on companies. A company is required to pay a specified percentage (18.5%) of its book profit as income tax if the tax liability of the company under regular provisions is lower than this amount. Section 115JB of the Income-tax Act mandates for the purpose of this section the profit and loss account shall be prepared in accordance with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, the Court observed that it is difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act." In the light of the above, our submissions on each of the disallowances made by the Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company. (3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it i necessary to grant the exemption in the public interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. (3A) Every profit and loss account and balance sheet of the company shall comply with the accounting standards. (3B) Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account , and balance sheet, the following, namely:- (a) the deviation from the accounting standards ,. (b) the reasons for such deviation ; and (c) the financial effect, if any, arising due to such deviation. (3C) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee are not in accordance with Part II of the Schedule of Companies Act. Also, it is imperative to note that the reliance placed by the Ld. AO on the judgment of Hon'ble Kerala High Court in Sree Bhagawathy Textiles Ltd. v. Assistant Commissioner of Income-tax [342 ITR 244]is imprudent. In the said case, it was clearly on records that prior period expenses were not debited to "Profit and Loss" account but to "Profit and Loss Appropriation" account. The Hon'ble Court examined and held in the concluding paragraph as under: "What is clear from the above is that the Assessing Officer should start with the profit available in the profit and loss account prepared in terms of Parts II and III of Schedule VI to the Companies Act. The profit under the said profit and loss account admittedly is Rs. 1,01,37,664. The way the assessee has claimed deduction based on the profit and loss appropriation account is detailed in the order of the Commissioner of Income-tax (Appeals). What is clear from the said order is that the assessee made a further deduction from the profit available under the profit and loss account prepared under the Companies Act. Obviously, unless ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was to be in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Such a computation of net profit, in view of the prescribed Accounting Standard (AS-5). requires the prior period expenses/extraordinary items to be shown separately. That did not mean that because those items had been shown separately, they did not constitute part of net profit. ' Paragraph 5 of the Accounting Standard (AS-5) specifically requires that all items of income and expenses which are 'recognized in a period' should be included in the profit or loss for the period unless an AS requires or permits otherwise, f period items', as given in AS-5. clearly stipulates that prior period items are incomes or expenses which arise 'in the current period' as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. Therefore, the income or expenses relatable to prior period items are those which arise in the current period, i.e.. the period relevant for the purposes of computing the net profit or loss. Clearly, prior period items are to be included in the determination of net profit or loss. Fur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s those items In view of the aforesaid discussion, net profit (as referred to in section 115JA) of the assessee-company was to be computed only after deducting the expenses on prior period/extraordinary items which were business expenditure, but were shown separately in the profit and loss account due to the specific requirement of the AS prescribed by the Institute of Chartered Accountants of India, "(emphasis supplied) It is imperative to take note of the case of Hon'ble Delhi High Court in Commissioner of Income-tax v. Jagatjit Industries Ltd. [339 ITR 382] where the Hon'ble Court allowed prior period expenses even when the computation was under normal provisions of the Act and section 145(2) was applicable. By implication, there is no justification to make addition on account of prior period expenses while applying section 115JB. Under MAT, favourable view was also taken by the Hon'ble Madras High Court in the case of Tamil Nadu Cements Corporation Ltd v CIT [349ITR58], The Hon'ble High Court clearly held that the case of Sree Bhagawathy Textiles Ltd. v. Assistant Commissioner of Income-tax [342 ITR 244] (as was relied upon by the AO) was distingu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It may also be noted from the above discussion that even extraordinary items have to be debited to the Profit & Loss Account. Having adopted the figure of Rs. 660.81lakhs as the starting point, the same has to be increased by the items specified in clauses (a) to (f) and has to be reduced by the items specified in clauses (i) to (vii) given in the Explanation. No other adjustment is permitted by law and also as laid down by the Supreme Court in the case of Apollo Tyres Ltd. (supra). None of the clauses given in the Explanation provide for the increase or decrease of the book profits by extraordinary items." ITAT Bench of Hyderabad in the case of DCIT v. M/s. Ushodaya Enterprises (ITA No. 1419/HYD/2008) followed the decision of rendered in the case of Gulf Oil Corporation vs. ACIT [111 ITD 124] while deciding the issue in favour of the assessee dismissed the ground of department for addition of prior period expenses to net profit as declared in the balance sheet. Without prejudice to our above submissions, we would like to mention that the Ld. AO has disallowed prior period expenses owing to the nature of the transaction, i.e. as per the Ld. AO, prior period expenses are not r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g standard. * The Ld. AO has placed reliance on Sutlej Cotton Mills Ltd. vs. ACIT (1993) 45 ITO 22 and Rain Commodities Ltd. (ITA no. 673/Hyd/2009) to substantiate the power of AO to adjust the book profit. According to Ld. AO, the decision of Supreme Court in Apollo Tyres Ltd. vs. CIT (255 ITR 273) does not place a blanket ban on AO to question financial statements where deviation from accounting standards is apparent. * The Ld. AO challenged the competency of technical committee and has placed reliance on McDowell and Co. ltd. v. Commercial Tax Officer (154 ITR 148) to hold that assessee has deliberately changed the depreciation rates to avoid paying taxes u/s 115JB. * An alternative ground has been taken by the Ld. AO that without prejudice to above the said claim should be disallowed under clause (i) of explanation 1 of section 115JB(2) i.e. amount set aside as provisions for diminution in the value of any asset. Our submissions: The Ld. AO has ignored the detailed submission filed by the assessee to substantiate that the claim is well in accordance with Accounting Standards prescribed by ICAI. In this regard, we submit that as per section 115JB(2), in order to c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion." A perusal of the above clearly rested down that as per section 211(3A) of Companies Act 1956, the profit & loss account of a company should be prepared in accordance with the applicable accounting standards issued by ICAI. The applicable accounting standard with respect to disallowance of depreciation shall be Accounting Standard 6, Depreciation Accounting. The relevant paras of accounting standard 6 which allows a company to revise the useful life of an asset are reproduced hereunder25 51 Relevant paragraphs of AS-6 Para 11 "The quantum of depreciation to be provided in an accounting period involves the exercise of judgement by management in the light of technical, commercial, accounting and legal requirements and accordingly may need periodical review. If it is considered that the original estimate of useful life of an asset requires any revision, the unamortised depreciable amount of the asset is charged to revenue over the revised remaining useful life." Para 13 "The statute governing an enterprise may provide the basis for computation of the depreciation. For example, the Companies Act, 1956 lays down the rates of depreciation in respect of various assets.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der to ensure that depreciation is charged in the books of accounts based on above factors and maintenance of assets in the long run may not become unviable. Thus, the change in the life of assets as determined by the Committee taking into account all the technological changes in regard to relevant equipment were implemented while finalizing the balance sheet for financial year 2011-12. This was done in order to ensure presentation of true and fair view of the books of accounts of the company. The books of accounts of the company are audited by statutory auditor appointed by office of CAG and the supplementary audit is conducted by the office of the CAG. The auditors are required to look into the matter of accounting estimates followed by company and its proper disclosure in financial statements. As per SA 540,'Auditing Accounting Estimates, Including Fair Value And Related Disclosures', an auditor is required to assure, with proper audit evidence, that accounting estimates followed in the financial statements are reasonable and does not involve management biasness. An auditor is required to disclose accounting estimates significant risks and possible management bias ide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m. Part III or the Sixth Schedule to the Companies Act, he is entitled to adjust the profit. To this extent, the power to adjust the book profit will have to be conceded to the Assessing Officer' However, the Ld. AO has failed to point out a single instance wherein the books of accounts a prepared by the assessee are not as per Part II of schedule of the Companies Act. The tinkering in the book profits has been done by the Ld. AO on his whims and fancies and without any legal or factual support. Therefore, it is earnestly prayed that in the absence of non-compliance of Part II of the Companies Act while preparing the profit and loss account, the AO cannot tinker with the profit and loss account to adjust the book profits and the addition made by the Ld. AO may be deleted. The Ld. AO has also contended that the assessee has employed the method of change in depreciation rates as a tool to avoid tax and hence, the Ld. AO has observed that the decision of the Supreme Court in McDowell Co. Ltd. v. Commercial Tax Officer (154 ITR 148) is relevant. The reliance is misplaced in the light of following factors: * The Ld. AO failed to appreciate that the assessee has been asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion relied by the Ld. AO is inapplicable to the facts of the present case. Therefore, it is earnestly prayed that the even the alternative contention raised by the Ld. AO is factually incorrect and disallowance of 'adjustment due to change in depreciation rates' made by the Ld. AO may kindly be deleted." 4,2 The Ld. AR furnished further submission vide letter dated 17.02.2016 as under: "Condition 1: Profit and loss should be prepared in accordance with Part II of schedule VI The provisions in relation to preparation of Profit and Loss account in accordance with Part II of Schedule VI of Companies Act, 1956 are contained in Section 211 of Companies Act, 1956. Sub section 2 of section 211 provides as under: "(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto." It further provides vide section 3A that "Every profit and loss account and balance sheet of the company shall comply with the accounting standards." Therefore, it is clear from the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stimate useful life may be revised and the rates of depreciation may be different (higher) than the rates contained in schedule XIV of Companies Act, 1956. Not only accounting standard but also Circular issued under Companies Act (dated 07/03/198 clarifies the position that the rates of depreciation charged by a company may be higher than I rates contemplated in Schedule XIV. The relevant extract of the circular as mentioned above is as under- "It may be clarified that the rates as contained in Schedule XIV should be viewed as the minimum rates, and, therefore, a company shall not be permitted to charge depreciation at rates lower than those specified in the schedule in relation to assets purchased after the date of applicability of the schedule. However, if on the basis of a bona fide technologic evaluation, higher rates of depreciation are justified, they may be provided with prop disclosure by way of a note forming part of annual account." A perusal of the Circular clarifies that a company can claim depreciation higher than the rate contained in Schedule XIV provided: a. It is based on a bonafide evaluation of the life of the asset, and b. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the decision of the Hon'ble High Court of Kerala in the case of Bhagawathy Textiles Ltd. vs. ACIT - ITA No. 74/2010. The AO also observed that as per Accounting Standard (AS) - 5 on net profit or loss for the Period, the prior period items and changes in accounting policies, the prior period items relate to the past and needed separate disclosure. He, finally, observed that the reason why AS requires for adjustment of prior period item in current year is that the Indian regulatory environment does not allow for revision of earlier year's financial statements. If prior period expense is allowed, the appellant will try to shift the expense to a period when the MAT provisions are applicable as against when normal provisions of Income Tax are applicable. 4.4 I have carefully considered the order passed by the AO and the submission filed by the Ld. AR. Section 115JB of the Act mandates that P & L A/c shall be prepared in accordance with the provisions of part II and part III of schedule VI of the Companies Act, 1956. The "book profit" so calculated is subject to adjustments to be increased by items prescribed in (a) to (i) and reduced by items (i) to (viii) of Explanation 1 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s contemplated under the provisions of the Companies Act, the Court observed that it is difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. " 4.6 The AO has relied on AS-5, issued by Institute of Chartered Accountant of India (ICAI) to disallow the prior period expenses. The said standard provides only for separate disclosure of prior period expenses but does not prohibit the appellant from claiming prior period expenses in the P & L A/c. The Hon'ble Delhi High Court has upheld allowability of prior period expenditure in the case of CIT v Khaitan Chemicals & Fertilizers Ltd., [307ITR 150]. The Hon'ble Court observed as under: "The Tribunal was correct, in law, in holding that the Assessing Officer had failed to appreciate that the net profit for the purpose of section 115J A is to be computed only after deducting the prior period expenses/extraordinary items. The fundamental flaw that had entered into the Assessing Officer's approach was that he was under an impression that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the 'current'profit or loss can be perceived. Two approaches have been indicated in Paragraph 19 of the said Accounting Standard (AS-5). The normal approach is to include prior period items in the determination of net profit or loss for the current period. The alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. As indicated in the Accounting Standard, in either case, the objective is to indicate the effect of such items on the current profit or loss. It was obvious that because of the prescribed AS which has to be followed by the assessee in view of the provisions of section 115JA(2) of the Act, read with section 211 of the Companies Act, the assessee was required to show the prior period items/extraordinary items separately so that their impact on the current profit or loss could be perceived. The fact, that the assessee had adopted the alternative approach of showing such items in the statement of profit and loss after determination of current n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consistently in the past. But it claims to have the useful life of its fixed assets examined by a technical committee and as the useful life as per the recommendation of the committee is reported to be shorter, it charged depreciation at a higher rate in order to align the duration of the depreciation charge with the expected useful life of the assets. 4.10 The AO made an adjustment on account of change in depreciation rate amounting to Rs. 52.74 crores to the book profit of the company for the purpose of determination of tax liability as per provisions of section 115JB. The AO was of the view that the accounting standard prescribed u/s 145(2) of the Act should be followed by the appellant and in case that was not done he had the authority to modify the book profit. He relied on the decisions in the case of Sutlej Cotton Mills Ltd. vs. ACIT 45 ITR 22 and Rain Commodities Ltd. (ITA No. 673/Hyd./2009). The AO also relied on judgement of the Hon'ble Apex court in the case of McDowell and Co. Ltd. vs. Commercial Tax Officer, 154 ITR 148 and was of the view that the appellant had resorted to a colorable device in order to reduce its tax liability under MAT. He was also of the vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce with the provisions of section 210 of the Companies Act, 1956. 4.12 According to section 350 of the Companies Act, 1956, "The amount of depreciation to be deducted in pursuance of clause (k) of sub-section 4 section 349 shall be the amount of depreciation on assets as shown by the books of the company at the end of the financial year expiring at commencement of this act or immediately thereafter and at the end of the each subsequent financial year and rate specified in the schedule XIV". The Companies Act lays down the depreciation rate for different types of assets. According to Circular No. 2/89 dated 07.03.1989, issued by the Department of the Company Affairs, "It may be clarified that the rates as contained in schedule XIV should be viewed as the minimum rates, therefore, a company shall not be permitted the charge depreciation at rates lower than those specified in the schedule in relation to assets purchased after the date of applicability of the schedule. However, if on the basis of a bonafide technological evaluation, higher rates of depreciation are justified, they may be provided with proper disclosure by way of a note forming part of the annual account". 4.1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the P & L A/c is lower than what it would have been if the change in the depreciation rate had not been effected. But, as has been brought out in para 4.13, as the Companies Act and Accounting Standard permit the management to carry out such revaluation (resulting in change in depreciation rate), it is not open to the AO to challenge the validity thereof simply because it has effect of reducing the net profit. 4.15 The provisions of section 115JB is applicable to a company which shows higher profit in its accounts but computes lower or nil profit of business under the regular provisions of the I. T. Act. Companies have also been found window dressing their accounts, so as to report higher profits and better financial health in order to cater to investors, creditors etc. Not claiming depreciation or claiming lower depreciation has been one of the instruments of such window dressing. In the case of the appellant, the situation is the reverse. It has reported lower net profit in the books on account of revision in the rate of depreciation. Prima facie therefore, it is not the case of window dressing by manipulating depreciation. In this regard, it may not be out of place to mention....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te clear that the appellant had correctly computed the book profit and the upward division thereof by the AO by way of adjustment due to change in depreciation rates amounting to Rs. 52.74 crores is not in as per provisions of law. It is, therefore, held that increased MAT liability on the adjusted book profits is not justified and the same is directed to be deleted. These grounds of appeal are ruled in favour of the appellant." (2.2) At the time of hearing before us, Ld. CIT (DR) relied on the Assessment order and read out the relevant portion from the same. (2.2.1) The Ld. Authorized Representative (AR) for the Assessee relied on the Paper Book which consisted of the following particulars: 1. Copy of Provision of 115B 2. Copy of Accounting Standard-6 3. Letter of MD intimated to Zonal Offices 4. Written submissions filed before Hon'ble CIT(A) dt. 21.01.2016 5. Written submissions filed before Hon'ble CIT(A) dt. 17.02.2016 6. Copy of audited Balance Sheet along with Auditors Report (2.2.2) The Ld. AR further contended that the issue in dispute is covered in favour of the Assessee by Apex Court's decision in the case of Apollo Tyres Ltd. Vs. CIT [255 ITR ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent year, cannot be treated as diminution in value of assets, and is not hit by Clause (i) of Explanation 1 to Section 115JB of IT Act. We may mention that the Hon'ble Gujarat High Court, in CIT v. Dintex Dyechem Ltd. [2015] 55 taxmann.com 178 (Guj.) and in Dy. CIT v. Gujarat Filaments Ltd. [2014] 369 ITR 384 (Guj.) held that addition made by the AO to book profit on account of additional depreciation debited in accounts for earlier years because of change in method of providing depreciation retrospectively was liable to be deleted. A perusal of Section 115JB (2) of IT Act shows that the book profit of the assessee company is to be arrived at in accordance with statement of profit and loss as per the provisions of Schedule III of the Companies Act, 2013 or as per the provisions of the Act governing such companies to which second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is applicable. Claim of depreciation in accordance with the provisions of Schedule III of the Companies Act, 2013 or as per the provisions of the Act governing such companies to which second proviso to sub-section (1) of section 129 of the Companies Act, 2013 (18 of 2013) is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l: these are not only subject to approval by the company in its general meeting, but also subject to examination by Registrar of Companies and his satisfaction that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act. (3.3) The Ld. AR of the assessee did not bring any judicial precedents or statutory provisions to our attention in which preferential treatment for a public sector undertaking is prescribed in relation to determination of its tax liabilities. We are of the view that unless specifically provided under law or intended by necessary implication of specific provisions under law, or so held by binding judicial precedents; a public sector undertaking cannot legitimately claim a preferential treatment in determination of its tax liabilities. Therefore, we hold that the fact that assessee is a public sector undertaking is irrelevant for adjudication of the dispute in this appeal before us. (3.4) We now come to the contention of Ld. AR of the assessee, that the issue in dispute is covered in favour of the assessee by decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs CIT (supra). The AO did not accept thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stified, they may be provided with proper disclosures by way of a note forming part of annual account." [Emphasis added by us.] (3.4.2.1) It is, therefore, obvious that under AS-6, higher rates of depreciation for assets have to be based on bona fide technological evaluation of the useful life of the depreciable assets. For a bona fide technical evaluation, it is necessary that the evaluation should be made by a competent person or body having the requisite technical knowledge and expertise. It is further necessary that such an evaluation leading to higher rate of depreciation is a bona fide evaluation, especially when such an evaluation results in tax benefit for the company. A self serving evaluation, which is not bona fide, leading to claim of reduced tax burden for the Assessee will be a colourable device within the meaning of the landmark decision of Hon'ble Supreme Court in the case of McDowell and Co. Ltd. vs. Commercial Tax Officer 154 ITR 148 (SC). A colourable device to evade tax has to be rejected. (3.4.3) We have already held in foregoing paragraph (3.2.1.1) that for the purpose of determination of book profits, the statutory role of Registrar of Companies to exam....